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Will Your B.C. Small Business Be Exempt From the New Employer’s Health Tax?

As of Jan. 1, 2019, businesses in British Columbia will be subject to a new Employer Health Tax. This tax replaces the Medical Services Plan premiums (MSPP), which are set to end by 2020. Wondering how this tax might affect your business? Here’s a look at the specifics.

Who Pays the British Columbia Employer Health Tax?

Individual taxpayers pay their own MSPPs, but businesses will pay for the new Employer Health Tax. While this change is going to save individuals an average of $900 per year, many businesses are bound to see a slight uptick in their tax liability. Luckily, many small businesses are exempt from this tax.

What Are the Employer Health Tax Rates?

The BC Employer Health Tax is based on payroll. If your business pays $500,000 or less in annual payroll costs, you don’t have to pay anything. If your payroll costs are over $500,000 and less than $750,000, you must pay the new tax at a rate of 0.98%. If your payroll is between $750,000 and $1 million, you must pay 1.46% for this tax. The rate climbs to 1.76% when payroll falls between $1 million and $1.25 million, and it’s 1.95% if your company’s payroll is over $1.25 million.

What Is the Purpose of the Employer Health Tax?

The BC government designed this tax to make up for the revenue the province would lose by eliminating the MSPP. In both cases, the money helps to cover the province’s healthcare system. This switch simply moves the tax liability from individuals to businesses in the province.

How Are Small Businesses Affected by the Employer Health Tax?

Close to 98% of businesses in British Columbia are classified as small businesses, and this group includes all businesses with fewer than 50 employees. Depending on the exact number of employees and their salaries, some of these businesses are likely to be affected by the new tax while others aren’t.

For example, consider a small business with 40 part-time employees each earning $10,000 per year. This business has $400,000 in payroll costs per year, so it’s not going to be affected by the new Employer Health Tax. By contrast, another small business has 10 full-time employees who each earn $60,000 per year. This company pays $600,000 per year in payroll costs, so it has to pay the tax even though it has fewer employees than the first company.

What Impact Does the BC Employer Health Tax Have on Employees?

Whether your small business has to pay the tax or not, employees directly benefit from the elimination of the MSPP. To illustrate, imagine you have six employees and your annual payroll costs are less than $500,000. You don’t have to pay the Employer Health Tax, but thanks to the elimination of the MSPP, your employees have extra money in their pockets. In this case, it’s a win-win situation for all of you.

When the government takes care of your employees’ healthcare costs, you don’t have to offer health insurance as a benefit unless you want to go above and beyond, and that saves you money in the long run. However, with the new Employer Health Tax, some businesses will have to start chipping in for the cost of universal care. If you’re not sure how these costs are going to affect you, consider talking to an accountant.

QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.

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